Tan Chong International Limited (HKEX: 693) FY2025 Results Analysis

Tan Chong International Limited, a major automotive player across Asia, has released its audited financial results for the year ended 31 December 2025. The results reflect the challenges of a volatile macroeconomic environment, supply constraints, and strategic realignments in the company’s core markets.

Key Financial Metrics and Performance Summary

Historical Performance Trends

• Revenue contracted by 5.2% YoY to HK\$12.0 billion, reflecting supply constraints and lower sales volumes, particularly for the new Subaru Forester.
• Profit after tax declined sharply by 47.8% to HK\$318.1 million, and EPS fell by 70% to 7.13 cents, highlighting the earnings pressure from volume shortfalls.
• EBITDA was down 18.1% YoY, with the operating profit margin falling from 8.6% to 6.2%.
• Net asset value per share improved by 7% to HK\$6.46, and the net gearing ratio saw notable improvement to 41.3% from 48.3%, indicating stronger balance sheet health.
• Dividend payout increased modestly, with a final proposed dividend of HK\$0.06 per share and total dividends of HK\$0.08 per share, up 6.7% YoY.

Dividends

The Board recommended a final dividend of HK\$0.06 per share (2024: HK\$0.055), bringing the total dividend for the year to HK\$0.08 per share (2024: HK\$0.075). This represents a 6.7% increase in total dividends despite a challenging year, signaling management’s confidence in the Group’s financial position and future prospects.

Exceptional Items and Asset Movements

• Investment Gains: The Group recognized fair value gains of HK\$327 million in other comprehensive income, driven by the disposal and appreciation of listed equity investments, primarily Subaru Corporation shares.
• Cost Controls: Distribution and administrative expenses declined by HK\$175 million, with a two-year cumulative reduction of HK\$286 million, reflecting effective cost discipline.
• Inventory Management: Group inventories were reduced by HK\$679.8 million, underscoring tight working capital management amid supply chain constraints.

Chairman’s Statement

“2025 was marked by sustained macroeconomic and geopolitical uncertainty, intensifying competition across Asian automotive markets, and constrained availability of key models. Against this backdrop, the Group maintained operational discipline, strengthened its balance sheet and overall financial health, and accumulated a strong order backlog – laying the groundwork for a recovery in sales registrations as supply constraints ease through 2026.”

Tone: The statement is cautiously optimistic, highlighting near-term pressures but focusing on operational discipline, a robust order backlog, and improved financial health as foundations for a better 2026.

Segmental and Geographic Highlights

• Singapore: Nissan’s sales were down 30% YoY due to an aging model line-up, but aftersales revenue and profit rose 15% and 11% respectively. Subaru sales in Singapore grew 68%, outpacing industry volume, on strong demand for the new Forester hybrid.
• Hong Kong: Demand for the new Forester outstripped supply, resulting in unfulfilled orders at 117% of allocation, with sales volume down 17% despite a 6% rise in TIV.
• Mainland China: Subaru sales dropped 48% amid inventory overhang and aggressive pricing by competitors. The Group focused on operational efficiency and brand preservation.
• Taiwan & Philippines: Taiwan sales and TIV contracted sharply, impacted by US tariffs. The Philippines saw a 56% YoY drop in Subaru sales due to allocation constraints, but demand remains robust for new models.
• Other ASEAN: Strategic shift to CBU model in Malaysia and Cambodia to reposition Subaru as premium; Thailand saw a 48% sales increase, capturing hybrid demand.
• Japan (ZERO Group): Revenue and net profit were flat in JPY terms but up 1-2% in HKD due to currency gains. Cost control and digitalisation remain focus areas.

Balance Sheet and Financial Health

• Net debt declined by 8% to HK\$5,376.8 million, largely due to working capital and inventory reductions.
• Net gearing improved materially to 41.3%.
• Return on Capital Employed (ROCE) fell to 4.6% from 6.7%, reflecting the lower earnings base, but asset quality and risk discipline were maintained.

Risk and Credit Management

• Impairment loss allowances on loans and advances rose to HK\$60.1 million (from HK\$47.6 million), but bad debts written off remained low at less than 0.3% for FY2025, indicating sound credit controls.
• The Group maintained robust lending risk policies, with regular portfolio reviews and strict credit approval processes.

Significant Investments and Divestments

• The Group’s equity investment portfolio stood at HK\$1.7 billion, mostly in Tokyo-listed securities, with realized and unrealized gains totaling HK\$327 million.
• Notably, gains from the disposal of Subaru Corporation shares were recognized within other comprehensive income rather than the profit and loss statement.

Corporate Actions and Governance

• No share buybacks, placements, or dilution occurred during the year.
• Two independent non-executive directors, Mr. Azman Bin Badrillah and Mr. Teo Ek Kee, will retire and not seek re-election in 2026.

Outlook and Prospects

• Macroeconomic uncertainty and geopolitical risks (notably in the Middle East) remain high, with potential impacts on trade, energy, and consumer sentiment.
• The Group expects to benefit from a strong order backlog and increased vehicle allocations starting in the second half of 2026, alongside new model launches and ongoing cost discipline.
• Management signals confidence in a recovery trajectory but maintains a disciplined and risk-averse stance in the face of uncertainty.

Conclusion and Investor Recommendations

Overall Assessment: The Group’s FY2025 performance was weak in terms of earnings and revenue, largely due to external supply constraints and adverse market conditions. However, the strengthened balance sheet, improved gearing, disciplined cost management, and robust order backlog position the company for a potential recovery in 2026. The increase in dividends and asset value per share signal management’s confidence despite near-term challenges.

Recommendations

• If you currently hold the stock: Maintain your position. The company has shored up its balance sheet, improved operational efficiency, and is poised to benefit from easing supply constraints and new model launches in 2026. Continue to monitor upcoming quarters for confirmation of the expected recovery in sales and earnings.
• If you do not currently hold the stock: Consider a wait-and-see approach. While the Group appears to be turning a corner with a strong order backlog and improved financials, earnings remain under pressure and macro risks persist. Re-evaluate upon evidence of tangible recovery in sales and profitability post mid-2026.

Disclaimer: This analysis is strictly based on information disclosed in Tan Chong International Limited’s FY2025 financial report. It does not constitute investment advice. Investors should conduct their own due diligence and consider their risk appetite before making any investment decisions.

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